CD-ROM Maker Future Media Wading Into IPOs' Still Waters

By DEBORA VRANA

Oct. 5, 1998 12 AM PT

TIMES STAFF WRITER

Betting on a comeback later this year in the market for first-time stock offerings, Future Media Productions Inc., a Valencia-based maker of CD-ROMs for computer and software companies, has filed for an initial public offering that could raise as much as $50 million.

While a virtual standstill in the IPO market has many companies such as Goldman, Sachs & Co. withdrawing or indefinitely delaying their deals, Future Media is scheduled to go public before the end of the year through underwriters Prudential Securities Inc. and ING Baring Furman Selz. Future Media plans to have its shares listed on Nasdaq under the symbol FMPI.

Started in 1994 by the three co-founders of Packard Bell NEC, Future Media creates, copies, packages and ships software CD-ROMs, a digital storage medium introduced in 1982.

The three men--Alex Sandel, Jason Barzilay and Beny Alagem--each own 33.3% of Future Media. Alagem was once chairman and chief executive of Packard Bell. Sandel, 55, runs Future Media as chairman and CEO.

Executives at Future Media would not comment on the IPO, since they are in the Securities and Exchange Commission-imposed “quiet period,” when company executives are not allowed to say anything that could be seen as touting the firm or its stock.

Proceeds from the IPO would help the company expand into the market for digital versatile discs, or DVD, envisioned as the next generation of CD-ROMs, according to documents filed with the SEC. Currently DVDs are used mostly to watch movies, but many industry specialists predict the technology will soon replace CD-ROMs for home computers.

“In their industry, these guys are the tops,” said Tom Taulli, an analyst who specializes in technology with IPO Monitor in Calabasas. “But this is a commodity industry that’s fluctuated a great deal, and the Street doesn’t like that. It’s a great company, but not a great industry. This will be a tough sell.”

Still, Taulli praised the company’s strategy to move into DVDs, predicting it will be the data-storage product of the future.

“They have no choice. It’s important for them to move away from the CD-ROM business--it’s on its way out,” Taulli said.

Future Media posted $16.7 million in revenue for the first half of the year, an increase of about 1.8% from $16.4 million in the first half of 1997, the filing shows. Still, Future Media’s first-half profit fell nearly 7%, to $5.7 million from $6.1 million in the year-ago period.

The filing did not specify how many shares Future Media expects to sell or what price it expects to get. Though the filing didn’t say what stake is being offered to the public, the three current shareholders combined will retain a majority stake.

The filing said $10.5 million from the expected deal would go to buy new equipment. Another $3.5 million would go directly to Sandel, Alagem and Barzilay. About $18.5 million would go to repay bank debt, and the rest would be used for general purposes.

But this is a tough market for any first-time public offering.

“It’s not going to be easy for any of these deals,” said David Menlow, president of IPO Financial Network Corp., a data tracker in Millburn, N.J. “Investors are still very wary. Still, the fundamentals [of the IPO market] are intact and I think things will improve by the end of the year.”

Last week, continued uncertainty in the broad market prompted many companies to postpone their IPOs. Several California companies still expect to see their deals priced some time this month.

San Jose-based Ayurcore Inc., a company that develops plant-based pharmaceuticals, is expected to sell shares at between $5 and $6 through underwriter L.T. Lawrence & Co.

Cupertino-based Audiohighway.com, which provides Internet service for downloading and playing back audio recordings, is expected to sell 2 million shares at $12 to $15 apiece through underwriter Paulson Investment Co.

Sunnyvale-based Computer Literacy Inc., which sells technical books and training materials via the Net, expects to sell 3 million shares at $7 to $9 apiece through underwriter NationsBanc Montgomery Securities.

But probably the most closely watched upcoming IPO is from ETek Dynamics Inc. of San Jose, a telecommunications equipment maker. It plans to raise as much as $60 million, selling stock at $9 to $11 a share through Goldman Sachs.

And an IPO from Santa Clara-based Healtheon Corp., which uses Internet technology to process health-care information, is likely to be closely watched, at least in part because of its founder’s history of success in Silicon Valley.

Healtheon’s deal would value the company at about $430 million. About 6.5 million common shares will be sold for $6 to $8 each, according to its IPO amendment filed with the SEC last week.

It plans to sell stock during the week of Oct. 19 through underwriters Morgan Stanley, Dean Witter & Co. and Goldman Sachs. The company’s founder is James Clark, also a founder of tech firms Netscape Communications Corp. and Silicon Graphics Inc.

“It’s hard to go wrong with Jim Clark,” analyst Taulli said. “Their goal is to use technology to reduce health-care costs.”

But, typical of many Internet companies, Healtheon has yet to post a profit.

Meanwhile, a long-delayed $15.4-million deal from Santa Ana printing company Troy Group is expected to be priced this week or next.

Debora Vrana covers investment banking for The Times. She can be reached at [email protected].